“UK Economy…”

The UK economy shrank by 0.1% in March whilst it expanded by 0.8% for the first quarter of 2022, showed official figures on Thursday.  The decline in GDP occurred by a drop in output by 0.2% mainly from Britain’s dominant services sector.  Whilst the UK economy contracted by a historic 9.3% in 2020, in 2021 it grew by 7.4%.  This represents a sharp change in output of any of the economies of the G7 countries during the COVID-19 pandemic.  GDP on a monthly basis is now 1.2% above its pre-COVID level in February 2020.  However, the risk of the UK economy moving into recession are growing, as the war in Ukraine increases the post pandemic pressures.  The Bank of England has forecasted that it will push inflation above 10% by the end of this year.  Nonetheless, the government is under political pressure to provide support to households and address increasing energy bills and other essentials.     

US Inflation Data

US consumer prices slowed in April, as gasoline prices moved from record highs, suggesting that inflation has probably peaked.  The consumer price index increased by 0.3% last month, the smallest increase since last August, said the Labour Department on Wednesday.  However, the deceleration in the CPI could probably be temporary.  Gasoline prices that could have been the contributing factor for the drop in the monthly inflation rate, are increasing again and reached about $4.161 per gallon early this week after dropping below $4 in April, said the Energy Information Administration.  In the 12 months through April, the CPI increased by 8.3% lower than that of March which increased by 8.5%. China’s COVID situation is adding to the pressure as well as the global supply chains who are driving up prices.  In addition, services prices are also keeping inflation high on the back of stronger demand over the upcoming summer months and a shortage of workers.   Higher rents, higher airline fares and the prices of new motor vehicles have raised underlying inflation last month.  When excluding volatile food and energy components, the CPI increased by 0.6% (0.3% in March), while core CPI increased 6.2% in the 12 months through April (6.5% in March). 

Christine Lagarde’s Speech in Slovenia

ECB President Christine Lagarde said on Wednesday that the European Central Bank is likely to halt its bond-buying stimulus programme early in the third quarter of this year.  She added whilst at a conference in Ljubljana, Slovenia, “judging by the incoming data, my expectation is that they should be concluded early in the third quarter.  The first-rate hike, informed by the ECB’s forward guidance on the interest rates, will take place sometime after the end of net asset purchases…this could mean a period of only a few weeks.”

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits unexpectedly climbed last week.  Initial claims for state unemployment benefits increased by 1,000 to a seasonally adjusted 203,000 for the week ending 7 May which is the highest since February, said the Labour Department on Thursday.  At the end of March there were a record of 11.5 million job openings and nonfarm payrolls increased by 428,000 in April, the 12^th straight month of employment gains greater than 400,000.  Tight labour market conditions are raising wages and keeping inflation high.  In another report on Thursday, the Labour Department stated that the producer price index (PPI) for final demand increased in April as gains in the cost of energy products have lessened.  The PPI increased by 1.6% in March gaining 0.5% for the month and increasing by 10.7% year-on-year.   

Biden on the FED Targeting Inflation

US President Joe Biden has acknowledged the impact inflation is leaving on Americans.  Together with the FED, he has placed the addressing of high inflationary pressure as a priority. “They are frustrated” he said, about Americans having to pay more for goods and services whilst also adding, “I don’t blame them.” In view that inflationary pressures have pushed annual consumer prices to more than 8% from last year, Biden highlighted the release of oil from reserves and his pressure on companies with record-high profits to lower prices.  He stated that the contributing factors for the spike in inflation are the COVID-19 pandemic, supply chain issues and Russia’s war with Ukraine. 

FED President John Williams about rate hikes…

New York FED President Jerome Powell’s indications that the central bank plans to raise interest rates by 50 basis points at each of its next policy meeting is reasonable, said New York President John Williams on Tuesday, as he underlined the underlying environment in which policymakers seek to tame inflation.  The FED last week has raised its benchmark overnight lending rate by half a percentage point to a target range of between 0.75% and 1% and has since indicated the same rate hikes are likely to take effect in the next policy meetings happening in June and July.  Williams told reporters after a speech at an economics conference organised by the German central bank, “I do think as a base case of thinking, 50 basis point increases make sense exactly as Chair Powell laid out.”  Policymakers have to combat inflationary pressures at a 40-year high.  Furthermore, Russia’s recent invasion of Ukraine has driven up food and energy prices, while the lockdowns in China amid the increase in COVID cases have also worsened existing supply chain problems.  Williams further stated that “The ongoing pandemic and war in Ukraine bring a tremendous amount of complexity and uncertainty…We will need to be data dependent and adjust our policy actions as circumstances warrant.”   In addition, William said that a good result for the central bank would be one where the labour market stayed broadly strong and healthy, as inflation came down, albeit the unemployment rate would rise. 

Bond yields

Eurozone borrowing costs dropped sharply on Tuesday as short positions were covered after recently pushing yields higher amid aggressive ECB’s tightening bets.  The 10-year Bund which is the bloc’s benchmark, dropped 8.5 basis points (PS) to 1.007%. On Monday it reached its highest since August 2014 at 1.189%.  US Treasuries have also applied some downward pressure on eurozone borrowing costs, with the US 10-year yield dropping 6bps to 2.97%.  The demand for safe-haven government bonds is driven by risk-aversion.  The spread between Italian and German 10-year rates narrowed by less than 200 bps.  On Tuesday the 10-year government bond yield dropped by 15.5 bps to 2.99% after hitting its highest since December 2018 at 3.232% on Monday.  The yield spread between core and periphery has recently widened as the hopes for further monetary and fiscal support for indebted southern European countries have faded. 

Oil

Oil prices dropped on Monday about 6% in line with equities amid the coronavirus lockdowns in China and the FED concerns about the demand outlook.  Brent crude dropped 5.7% settling at $105.94 a barrel while the US West Texas Intermediate crude dropped 6.1% to settle at $103.09 a barrel.  So far this year both contracts gained about 35%.  Concerns over interest rate hikes and worries about the possibility of a recession arising from China’s slower export growth have shaken the financial markets.  Crude imports by China in the first four months of 2022 dropped by 4.8% from the previous year.  Stock indexes on Wall Street dropped and the dollar hit a two-decade high, resulting in oil being more expensive for holders of other currencies.  Meanwhile, Saudi Arabia, the top oil exporter, lowered crude prices for Asia and Europe for June.    The proposal by the EU commission of a phased embargo on Russian oil, increased the prices for Brent and WTI for the second straight week.  Such proposal needs unanimous approval by EU members. US crude oil price settled below $100 a barrel on Tuesday to its lowest level in two weeks.  The US West Texas Intermediate crude dropped by 3.2% to $99.76 a barrel, while Brent crude declined by 3.28% at $102.46 a barrel.  Wall Street’s main indexes also dropped amid concerns of aggressive monetary policy tightening and slowing economic growth.  Meanwhile, comments earlier in the session by Saudi and UAE energy ministers boosted Brent and WTI up by more than $1 a barrel.  Oil prices climbed on Wednesday by more than 5% as the flows of Russian gas to Europe dropped and Russia sanctioned some European gas companies, adding to uncertainty in world energy markets.  Brent crude settled higher by 4.9% to $107.51 a barrel, while US West Texas Intermediate crude climbed 6% higher to $105.71. 

Malta:  International Trade in Goods – March 2022

A press release dated 10 May 2022 shows that provisional data recorded a total trade in goods deficit of €246.3 million during March, compared to a deficit of 180.3 million for the same month of 2021. Whilst imports totalled €553.5 million, exports amounted to €307.2 million representing an increase of €80.6 billion and 14.7 million respectively over March 2021.  The value of imports increased due to machinery and transport equipment (€95.5 million). Concurrently on the export side, the main increases were registered in Machinery and equipment (€24.1 million) and Chemicals (€9.6 million).  Meanwhile, for the first quarter of the year, the total trade in goods deficit widened by 245 million in comparison to the same month of 2021, reaching €640.6 million.   Imports and exports increased by €406.5 million and €161.4 million respectively and totalled €1636.9 and €996.3 million. Higher imports were mainly recorded in Machinery and transport equipment (€147.1 million) mineral fuels, lubricants, and related materials (€144.1 million) and chemicals (€48.7 million). Nonetheless, on the exports side, mineral fuels, lubricants, and related materials (€119 million), food (€31.1 million), chemicals (€23.1 million) and semi-manufactured goods (€20.3 million) contributed to the increase. 

Malta – Real Estate Transactions – April 2022

A press release dated 10 May 2022 shows provisional data on residential property sale transactions based on the date of registration with the tax authority.  In April 2022, the number of final deeds of sale relating to residential property amounted to 1,109, which is 6.4% lower when compared to a year earlier.  The value of these deeds totalled €233 million, 3.8% lower than the value reached in April 2021. The highest number of final deeds are located in the regions of Ghawdex, Haz-Zabbar, Ix-Xghajra, iz-Zejtun, Birzebbuga,Marsaskala and Marsaxlokk.  Meanwhile, the lowest numbers of deeds were noted in Birgu, Isla, Bormla, Kalkara and the region of Attard, Balzan, Iklin and Lija.  Nonetheless, in April 2022, 1,018 promise of sale agreements relating to residential property were registered, which is a 28.7% decrease in the previous year.     

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